
[Federal Register Volume 78, Number 164 (Friday, August 23, 2013)]
[Notices]
[Pages 52598-52599]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-20611]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70232; File No. SR-FICC-2013-08]


Self-Regulatory Organizations; Fixed Income Clearing Corporation; 
Notice of Filing of Proposed Rule Change in Connection With the 
Notification of Settlement Process Used by the Mortgage-Backed 
Securities Division (``MBSD'')

August 19, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on August 9, 2013, the Fixed Income Clearing Corporation 
(``FICC'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by FICC. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of this rule filing is to change the grace period and 
the processing fee for late reconciliations in connection with the 
notification of settlement (``NOS'') process.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FICC included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FICC has prepared summaries, set forth in sections (A), 
(B) and (C) below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

(1) Purpose of the Proposed Rule Change
    The purpose of this rule filing is to change the grace period and 
the processing fee for late reconciliations in connection with the 
notification of settlement (``NOS'') process.
    MBSD processes settlement-balance order (``SBO'') destined to-be 
announced (``TBA'') transactions, trade-for-trade (``TFTD'') TBA 
transactions, TBA option transactions and Specified Pool Trades 
(``SPTs''). MBSD's processing of these eligible transactions consists 
of the trade matching, TBA netting, electronic pool notification 
allocation, pool comparison, pool netting, settlement versus FICC (in 
its capacity as central counterparty) or the original settlement 
counterparty, as applicable, and NOS for those trades that settle 
outside of FICC.
    SPTs and Option trades \3\ are only eligible for trade matching and 
risk management services. With respect to SPTs and other trades that 
settle outside of FICC \4\, members must settle such obligations and 
report such settlement by submitting a NOS to FICC.
---------------------------------------------------------------------------

    \3\ With respect to option trades, members are required to 
submit bilateral trade cancellation instructions to RTTM[supreg], 
even after the underlying options have expired. Failure to receive 
such instructions from either party to an Option trade will, 
therefore, result in both counterparties being subject to mark and 
margin requirements based on non-existing positions.
    \4\ Other trades that settle outside of MBSD include (1) 
transactions for which clearing members chose not to submit 
allocation information into pool netting and (2) certain 
transactions with an incomplete master file on a pool record or 
number.
---------------------------------------------------------------------------

    Currently, the NOS process requires MBSD members to submit such 
notification on the clearance day.\5\ The reconciliation of uncompared 
NOS submission must be done within two (2) days of the uncompared NOS 
submission. Reconciliation occurs when any of the following actions 
occur: (a) the counterparty submits corresponding NOS to match the 
initiator's submission, (b) the counterparty submits a DK \6\ notice to 
the initiator's submission or (c) the initiator deletes its previously 
submitted NOS that remains uncompared. Currently, if the initiator or 
the contraside, as applicable, elects any of these actions beyond the 
two (2) day grace period, such member will be subject to a late fee in 
the amount of $25.00 per day.
---------------------------------------------------------------------------

    \5\ With respect to NOS, the clearance day is the day that the 
seller delivers the pools to the buyer. The clearance day is 
generally on or after the contractual settlement day.
    \6\ Pursuant to the MBSD Rules, ``DK'' means a statement 
submitted to the Corporation by a member that the member ``does not 
know'' (i.e., denies the existence of) a Transaction reported to the 
member by the Corporation. See Clearing Rules, Mortgage-Backed 
Securities Division, Definitions.
---------------------------------------------------------------------------

    A successful bilateral comparison of NOS by the respective 
contrasides ensures that the positions on a member's Open Commitment 
Report \7\

[[Page 52599]]

are accurate and up-to-date. Timely submission and matching of NOS to 
FICC is crucial in order to minimize the risk that MBSD over or under 
margins members as a result of calculating Clearing Fund requirements 
and mark-to-market values that are based on positions which--
unbeknownst to FICC--have actually settled between members. As a 
result, it is important that members submit the NOS as soon as possible 
after settlement, and it is equally important that members monitor 
their counterparties' NOS submissions. In case of a member's 
insolvency, the timely submission and processing of NOS is also 
important, given that FICC must quickly and accurately determine which 
positions are true fails--and therefore need to be liquidated. In an 
effort to encourage members to submit NOS timely and address uncompared 
NOS quickly, FICC is proposing to (1) change the late fee from $25.00 
per day to $150.00 per day and (2) reduce the grace period from two (2) 
days to one (1) day.
---------------------------------------------------------------------------

    \7\ Pursuant to the MBSD Rules, ``Open Commitment Report'' is 
defined as the report furnished by FICC to Members reflecting 
Members' open commitments in the Clearing System. See Clearing 
Rules, Mortgage-Backed Securities Division, Definitions.
---------------------------------------------------------------------------

    The proposed change with respect to the late fee is attached as 
Exhibit 5. The proposed change with respect to the grace period does 
not require revisions to the Clearing Rules because the grace period is 
not referenced in the rules.
(2) Statutory Basis for the Proposed Rule Change
    FICC believes the proposed rule change is consistent with the 
requirements of Section 17A of the Securities Exchange Act of 1934, as 
amended (the ``Act''), and the rules and regulations thereunder because 
(1) it facilitates the prompt and accurate clearance and settlement of 
securities and (2) assures the safeguarding of securities and funds 
which are in the custody or control of FICC or for which it is 
responsible by encouraging members to comply with a necessary risk 
management tool that facilitates FICC's receipt of accurate and timely 
settlement information.

B. Self-Regulatory Organization's Statement on Burden on Competition

    FICC does not believe that the proposed rule change will have any 
negative impact, or impose any burden, on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments relating to the proposed rule changes have not yet 
been solicited or received. FICC will notify the Commission of any 
written comments received by FICC.

D. Advance Notices Filed Pursuant to Section 806(e) of the Payment, 
Clearing and Settlement Supervision Act

    (a) Not applicable.
    (b) Not applicable.
    (c) Not applicable.
    (d) Not applicable.
    (e) Not applicable.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml), or
     Send an email to rule-comment@sec.gov. Please include File 
Number SR-FICC-2013-08 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington DC 20549-1090.
    All submissions should refer to File Number SR-FICC- 2013-08. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method of submission. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C 552, will be available for Web site 
viewing and printing in the Commission's Public Reference Room Section 
located at 100 F Street, NE., Washington DC 20549-1090 on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
such filing also will be available for inspection and copying at the 
principal office of FICC and on FICC's Web site at http://www.dtcc.com/downloads/legal/rule_filings/2013/ficc/SR_FICC_2013_08.pdf. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-FICC-2013-08 and should be 
submitted on or before September 13, 2013.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-20611 Filed 8-22-13; 8:45 am]
BILLING CODE 8011-01-P


